‘Free’ community college is great marketing,...

1of28Win-Mon Aung Kyi attends a class at City College of San Francisco. The city already offers free tuition for first-year students who are residents. The state may extend its program to second-year students.Photo: Photos by Liz Hafalia / The Chronicle

2of28The state’s program does not cover all of a student’s costs, and not every college offers it.Photo: Lea Suzuki / The Chronicle

3of28California’s community colleges have the option to spend the funds on programs other than free tuition.Photo: Paul Chinn / The Chronicle

A new state law that promises free tuition for first-year, full-time students at most California community colleges gets an A for marketing but a C for economics.

While it may have the intended effect — encouraging more students to go full time — it will also have the unintended consequence of shifting some college costs from the federal government to the state. That’s because some middle- and high-income students who could have recouped first-year tuition on their federal tax returns will have it paid by the state instead.

Lawmakers might want to study this before they pass a new bill that would extend free tuition for full-time students in their second year.

AB19, the California College Promise law, took effect this fall. It waives enrollment fees for first-time college students taking at least 12 units each semester (considered full-time) during their first year at a participating community college. The community colleges charge these fees — $46 per unit — in lieu of tuition, and they’re often called tuition. The waiver does not cover books, parking or other expenses.

Students must be California residents and complete the federal student aid application or, if they are undocumented, a California Dream Act application, to qualify. There is no age or income limit, but students are disqualified if they have already taken at least one college course (excluding ones taken during high school or the summer after).

Many first-year students who will qualify for the new College Promise fee waiver would have gotten free tuition anyway under the decades-old Board of Governors fee waiver program.

Low- and middle-income students can get a Board of Governors waiver, regardless of their year in college or course load, if they meet income or need requirements and are California residents (even if they are undocumented immigrants). They also must maintain a 2.0 grade point average. (This has been renamed the College Promise Grant, but most people still call it a Board of Governors waiver to distinguish it from the new AB19 first-time-student waiver.)

About 42 percent of California community college students get a Board of Governors waiver, and it pays for about two-thirds of units taken.

Most students who don’t qualify for a fee waiver can recover their fees by claiming the American Opportunity Tax Credit on their federal tax return. A student, or parents who claim the student as a dependent, can get this dollar-for-dollar credit for up to $2,500 per year spent on tuition, fees and books. Taxpayers can claim this credit for up to four years, but they can’t take it if their income exceeds $90,000 (single filers) or $160,000 (married).

This credit easily covers a full year of California community college tuition — $1,104 for 12 units per semester — with plenty left over for books.

Students who get a fee waiver under AB19 cannot claim this credit for tuition. “It may not be giving (the student) any direct benefit,” but it will shift costs from the federal government to the state, said Mark Kantrowitz, publisher of Savingforcollege.com.

The only first-year students who really come out ahead are high-income ones who couldn’t claim the federal credit.

An analysis of AB19 estimated that 19,000 first-year students who would not qualify for a Board of Governors waiver would get free tuition under the new law, at an estimated cost of $31 million. Gov. Jerry Brown ended up allocating $46 million for the new program this year.

The bill analysis did not estimate how many of these 19,000 students would have recouped their fees under the federal tax credit. That issue never came up, said the bill’s lead author, Assemblyman Miguel Santiago, D-Los Angeles. AB19 “was purely about breaking down barriers and increasing student success. When a student commits to go full time, the success rates jump up significantly,” he said.

This month, Santiago introduced AB2, which would extend the fee-waiver program to full-time students in their second year. Santiago said he “would be happy to take a look at” the tax credit issue in the context of that bill.

Bryan Dickason, a financial aid specialist with the community college chancellor’s office, said he thinks one goal of legislators was to keep up with other states offering free community college.

“Oftentimes, policymakers promote free tuition programs because it sounds really good, when the reality is they are not giving you that much additional income,” Kantrowitz said. Nevertheless, “free tuition is a real powerful marketing message.” In states that have adopted them, “it increases enrollment by college-capable low-income students,” in some cases by 10 to 20 percent.

California’s first-year fee waiver could transfer costs from the federal to state government, said Debbie Cochran, executive vice president of the Institute for College Access and Success. But “there are certainly marketing benefits that come with the free college” offer. “Folks don’t see a direct trade-off between a real time (fee waiver) and a credit for expenses incurred. Behaviorally, those two forms of aid have different responses.”

But like most marketing messages, “free college” can be misunderstood.

The chancellor’s office has been contacted by people who are upset that the program is not covering all of their college costs, or that they can’t go to college full-time because they have to work, Dickason said.

And not all of the state’s 115 community colleges are offering free tuition to all first-time full-time students. Nine colleges, none in the Bay Area, are not getting AB19 funding, because the law requires them to participate in the federal student loan program, which they don’t want to do.

And 23 colleges plan to use AB19 funding to provide something other than first-year fee waivers. The law lets schools use this money in other ways that advance its goals, which include increasing the number of high school students prepared for college, increasing the percentage of college students who earn certificates for in-demand jobs or transfer to four-year colleges, and reducing achievement gaps for students from underrepresented groups.

In the Bay Area, these community colleges include Cañada, Chabot, Las Positas, Marin, Mission, San Francisco, San Mateo, Skyline and West Valley.

The three in the San Mateo County Community College District (Cañada College, College of San Mateo and Skyline College) already have “Promise Scholars programs” for first-year, full-time students. They provide, at a minimum, free tuition, a book stipend and academic and career counseling. The programs also address “food insecurity and transportation for under-resourced students,” the district said in an email. The district’s three colleges are using their AB19 funds (about $650,000 total) to support their Promise programs.

On its website, Las Positas College tried to clear up “misinformation” and “misconceptions” about how AB19 money can be used. “There is no mandate that a college must use these appropriated funds for the sole purpose of providing … all first time full-time students with a fee waiver for one year,” it says. The Livermore college said it plans to use AB19 funds to “support students with financial need in other meaningful ways,” such as providing $500 per semester for books.

Chabot College in Hayward plans to use its funds to help all eligible, low-income students apply for and receive fee waivers and additional financial aid, in part by adding three financial aid positions.

City College of San Francisco already provides free tuition to all San Francisco residents who don’t have their fees covered by federal or state aid. Those who do get other aid get a stipend of $250 per semester (full-time) or $100 (part-time) from the city-funded plan called Free City.

City College might use its AB19 money ($416,580) to offer a $500 tuition credit to first-time students who were planning to enroll part time but switch to full time. The money could go to city residents who failed to confirm their residency or to nonresidents. There could be a GPA requirement, said City College spokeswoman Connie Chan.

Kathleen Pender writes the Net Worth column in The San Francisco Chronicle. She explains how the big business and economic news of the day affect a household's net worth. She covers saving, investing, debt, taxes, housing, mortgages, retirement plans, employment and unemployment with a focus on issues specific to California and the Bay Area.

When it comes to big financial decisions, she believes that the simplest answer is almost always the best and that people would stay out of money trouble if they didn't get involved in things they can't understand. Pender welcomes questions from readers and frequently answers them in her column.

She majored in business journalism at the University of Missouri-Columbia and was a Knight-Bagehot fellow in business journalism at Columbia University.